Why Ambarella Inc. Shares Plunged

Is Ambarella's drop meaningful? Or just another movement?

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Ambarella(NASDAQ:AMBA) fell more than 13% during Wednesday's intra-day trading after an analyst at Needham downgraded the stock to hold from buy.

So what: While Needham analyst Quinn Bolton remained impressed by Ambarella's wearable offerings unveiled at this year's CES -- including a new pendant camera platform designed in a partnership with Google for use with its Helpouts service -- at the same time, he noted shares looked pricey following a nearly 45% run-up over the past month alone.

And that seems fair enough. Even after today's pullback, Ambarella stock is still trading around 27 times next year's estimated earnings, and nearly 7 times sales.

Now what: But that still doesn't mean Ambarella shareholders should be running for the hills. After all, in Q3, the company not only grew revenue by a solid 24% year over year to $35.7 million, but also managed to increase adjusted net income per share by almost 35% over the same period.

As a result, and despite today's downgrade, I'm still convinced we're talking about a healthy, fast-growing company poised to reward patient investors over the long term.

Author

As a technology and consumer goods specialist for the Fool, Steve looks for responsible businesses that positively shape our lives. Then he invests accordingly. Enjoy his work? Connect with him on Twitter & Facebook so you don't miss a thing.